Imagine being the parent of a child suffering from leukemia. All conventional treatments have failed; the end of your child’s life seems near. Then a new treatment becomes available that seems miraculous. It retools some of a child’s own immune system cells to attack and vanquish the cancer. You learn that, in more than four out of five children treated in clinical trials, the treatment has worked, and the children live.
You might have to catch your breath when you hear the treatment’s cost: nearly a half million dollars. Perhaps more miraculously, the company that developed the treatment is offering to refund the money if it doesn’t work within a month.
In one of the first arrangements of its kind involving a novel cancer therapy, Novartis says there will be no charge for patients or health insurers if a child or young adult treated for this indication doesn’t respond to treatment within the first month. Although many details of the arrangement are unclear, Novartis has apparently extended the same deal to Medicaid, in a handshake deal with the Center for Medicare and Medicaid Services.
This unusual arrangement, a type of value-based or outcomes-based contract, could be a template for similar deals over many innovative, high-cost drugs. Such deals tie the prices that are paid for drugs to the outcomes achieved for patients — or even split the financial risks, so that payers may get some or all of their money back if drugs don’t work as intended. The arrangements constitute a departure from more conventional drug- contracts, which typically link prices, discounts, and payments to the volume of drugs bought.
Although these arrangements alone won’t address the challenges of paying for costly new medications, they are an important arrow in the quiver, especially for cancer drugs. According to Quintiles-IMS, 631 unique molecules aimed at combatting cancer are now in the late stages of development, with many likely to make it to market within a few years. Many of these drugs may prove highly effective for some patients and even constitute cures. They will also be high cost.
All stakeholders have a lot to learn about the experiments under way in value-based contracting, such as the Kymriah arrangement with CMS. But a number of legal, regulatory, and other roadblocks need to be removed first. Among them:
- The FDA should finalize its proposed guidance to drug manufacturers about the so-called health care economic information it can communicate to payers about not-yet approved drugs. Doing so will give a clearer green light for discussions between payers and manufacturers about potential value-based contracts before these drugs come to market.
- CMS should make reasonable regulatory accommodations so that rules requiring that Medicaid obtain the “best price” for drugs don’t preclude the type of arrangement offered for Kymriah. Strictly speaking, if the drug is free when it doesn’t work in patients, that “best price” for all of Medicaid could be zero, always. And while that sounds nonsensical, it’s unclear if there’s an easy regulatory work-around. If there isn’t, Congress should step in and make changes in law to accommodate these types of arrangements.
- The Office of the Inspector General of the Department of Health and Human Services should develop new “safe harbors” in anti-kickback laws to allow certain activities that support value-based contracting, e.g., gathering data to understand how well these complicated drugs are working and carefully coordinating complex care for patients. Today, if manufacturers bear these costs, their actions could be construed as illegal “inducements” to use their drugs. Removing any legal cloud over these activities in support of value-based contracting would allow them to proceed without risk of sanction.
Value-based contracting alone isn’t likely to be the sole solution to the coming tidal wave of innovative, high-cost treatments — not just for cancers, but for other conditions. Alternative approaches to financing them are needed, especially for public programs like Medicare and Medicaid. Congress should require the National Academy of Medicine to study alternatives and report back on options. After all, there are problems worse than coping with the coming wave of high cost, often highly effective drugs — such as having a world without them.
Susan Dentzer is president and chief executive officer, and Tom Hubbard is vice president of policy research, for the Network for Excellence in Health Innovation, a national nonprofit, nonpartisan organization composed of stakeholders from across the health-care system.